You are here

5. Social Security

Newstart Allowance and mature age job seekers

5.52 This
section considers the situation of mature age job seekers in receipt of
Newstart Allowance. The ALRC does not propose to make any changes to activity
test requirements for those aged 55 years and older. However, the ALRC asks for
stakeholder comment about whether changes to the withdrawal rate for Newstart
Allowance for recipients aged 55 years and older would have an effect on
incentives for workforce participation.

5.53 At
June 2012, there were 550,000 recipients of Newstart Allowance. Of these,
approximately 22% were aged 40–49, almost 19% were aged 50–59, and 9.1% were
aged 60–64.[85]

5.54 For the purposes of Newstart Allowance, ‘mature age’ is defined as 55
years and older. At June 2012, there were 98,050 recipients, or 18% of the
total Newstart Allowance population, in this age group.[86]
This number has almost doubled since June 2002,[87]
driven by the phasing out of Partner Allowance, Mature Age Allowance and Widow
Allowance, as well as the increasing age of eligibility of the Age Pension for
women.[88]

5.55 Approximately
50,000 Newstart Allowance recipients aged 55 years and older are ‘very long-term’
income support recipients (in receipt of income support for two years or more).[89]
This represents approximately half of the total Newstart Allowance recipients
in this age bracket,[90]
as well as 20% of all very long-term income support recipients.[91]

5.56 Some
Newstart Allowance recipients have been assessed as having a partial capacity
to work: a physical, intellectual or psychiatric impairment that prevents a
person from working at least 30 hours per week at the relevant minimum wage or
above, independently of a program of support, for the next two years.[92]
At June 2012, there were 99,884 Newstart Allowance recipients with a
partial capacity to work.[93]
Of these, 27.1% were aged 55 years and older.[94]
Persons with a partial capacity to work made up 27.6% of all Newstart Allowance
recipients in this age group.[95]

Activity test requirements for mature age job
seekers

5.57 Different
activity tests and participation obligations apply to some mature age persons. Job
seekers aged 55 years and over have a concessional activity test option: they
may satisfy the activity test if they undertake at least 30 hours per fortnight
of approved and suitable voluntary work, paid work (including self-employment)
or a combination of the two.[96]
At 29 June 2012, 19,582 (21.8%) of all activity-tested mature age job
seekers were satisfying their requirements in this way.[97]

5.58 Where
mature age job seekers are satisfying their activity test in this way, they are
generally not required to attend appointments with their employment services
provider. They must still register and remain connected to a provider while
undertaking these activities and are required to accept suitable paid work or
referral to interviews.[98]
In addition, they may access or continue to access the full range of services
available through their employment services provider on a voluntary basis.[99] Job seekers who do not satisfy their activity test through
undertaking 30 hours per fortnight of voluntary work, paid work, or a
combination of the two, have the same participation obligations as other job
seekers.[100]

5.59 In
2009, the Participation Review Taskforce considered the different activity test
rules for job seekers aged 55 years and over. It recommended that, in the
medium term, mature age job seekers should have the same participation requirements
as other job seekers.[101]
However, the Taskforce recommended that this change should be preceded by
actions to combat negative attitudes towards older workers.[102]

5.60 In
the Issues Paper, the ALRC asked if the current activity test requirements for mature
age job seekers should be changed.[103]
Some stakeholders argued that the current concessional activity test sends an
inappropriate message about the expected workforce participation of mature age persons.
For example, the Australian Chamber of Commerce and Industry argued that the
current exemptions for mature age workers can discourage participation in the
workforce.[104]
COTA agreed that allowing persons to satisfy their activity test by
volunteering ‘could be seen to be discouraging older people from trying to
re-enter the paid workforce’.[105]

5.61 Other
stakeholders were opposed to any tightening of the activity test for job
seekers aged 55 years and over. They argued that the concessional activity test
was appropriate in light of the current employment prospects for mature age job
seekers.[106]
Despite its reservations about the message sent by the current activity test, COTA
also did not support any immediate change.[107]
NWRN and the Brotherhood of St Laurence did not support tightening the current
activity test for this group of income support recipients.[108]
For NWRN, changes to the activity test would force older job seekers into ‘a
cycle of constant rejection and humiliation’.[109]

5.62 Writing about the prospects for an ageing labour force, Professor Philip
Taylor makes a similar argument:

While older workers may
nowadays be somewhat closer to the labour market than they once were, their
employability is often quite poor … Something that even its most ardent
proponents must recognize is that ‘activation’ in terms of offering the ‘right’
of older people to work when there is no work to be had due to age
discrimination, a lack of skills currency, or failing health may simply be
condemning many to ‘active’ ageing in the form of labour force participation,
but with little or no prospect of meaningful job opportunities.[110]

5.63 The
ALRC considers that there should be no further tightening of the current
activity test for job seekers aged 55 years and over. The test as it currently
operates serves to provide a concession for the barriers to work faced by persons
in this age group. Given that job seekers may voluntarily continue to engage
with their employment services provider, the current activity test requirements
do not appear to be acting as a barrier to mature age participation.

5.64 In
addition, the concessional activity test recognises the value of volunteering,
not only as a potential pathway to paid employment, but also as a form of
productive work in its own right.[111]

Taper rates for mature age job seekers

5.65 Newstart
Allowance has undergone significant reform since the early 2000s. The primary
consequence of the reforms has been a significant extension of the scope of
Newstart Allowance to encompass a wider population group, including parents of
young children, people with a partial capacity to work and the mature aged.[112]
These reforms have meant that Newstart Allowance increasingly treats groups of recipients
differently—for instance, through different activity test requirements.[113]

5.66 In
general, however, Newstart Allowance recipients have the same income free area
and withdrawal rate applied to any income received. The current income free area
is $62 per fortnight.[114]
Income between $62 and $250 per fortnight reduces payments by 50 cents in the
dollar. Income above $250 per fortnight reduces payment by 60 cents in the
dollar.[115]

5.67 The
AHRC notes that the low income free area for Newstart Allowance recipients
‘acts as a specific disincentive to part-time or casual work’.[116]
NWRN reported that ‘older job seekers tell us that the exceedingly low “income
free” area … is a major impediment to undertaking additional hours of work’.[117]

5.68 The
income free area, together with the withdrawal rate, is intentionally designed in
this way to maintain the incentive to take up full-time paid work.[118]
In a joint submission to the Allowance Payment Inquiry, DEEWR, FaHCSIA, DHS and
DIISRTE argued that ‘if people in receipt of payments are encouraged to take
part time employment there is an inherent risk that they will substitute this
for full time permanent work’.[119]
They contended that this is at odds with the ‘message that people should be
making the maximum effort to fully support themselves’.[120]

5.69 However,
DEEWR, FaHCSIA, DHS and DIISRTE also acknowledged the changing nature of the
cohort in receipt of Newstart Allowance. This has changed from a group of job
seekers notionally with the capacity and availability to work full time, to one
including those with partial capacity to work, caring responsibilities, and the
mature aged. This change was said to present ‘new challenges to the allowance
payment system to assist people in the transition off payment and into work’.[121]
There is some evidence that part-time or casual work can act as a stepping stone
or pathway to full-time work.[122]
There is also evidence that persons aged 55 years and older (particularly men)
may remain in casual employment for an extended period, possibly as a step towards
retirement.[123]

5.70 In
addition, the different activity tests for different Newstart Allowance payment
groups means that fully meeting participation obligations may not result in sufficient
employment income to move completely off income support. This may be the case
for principal carers and those with a partial capacity to work, who have
part-time participation obligations.[124]
This may also be the case for Newstart Allowance recipients aged 55 years and older
satisfying the concessional activity test.[125]

5.71 The
financial benefit derived from combining paid work and income support can be
improved by modifying the income free area or withdrawal rate. This is the policy
intent behind the changes to the income test for single principal carers, to take
effect from 1 January 2013. This change will introduce a flat withdrawal
rate of 40 cents per dollar for each dollar received over the income free area.[126]

5.72 There
may be merit in introducing a less severe withdrawal rate for Newstart Allowance
recipients aged 55 years and over to improve the financial incentives for combining
part-time or casual work with income support.[127]
As the AHRC has noted, mature age persons may face particular barriers to
obtaining full-time work—despite their maximum efforts—because of the
prevalence of age discrimination.[128]
Additionally, in some circumstances part-time or casual work may be more suited
to managing ill health or disability or combining work with caring
responsibilities.

5.73 It
has been said that ‘ongoing, purposeful reform to the allowance payment system
which promotes higher workforce participation and productivity growth is
critical to helping Australia manage an ageing population’.[129]
The OECD and others have suggested that payment reform should move in the
direction of fewer distinctions between payment recipients, not more.[130]
However, the ALRC invites stakeholder comment about whether changes to the
income test withdrawal rate for Newstart Allowance recipients aged 55 years and
over should form part of the process of ongoing reform.

Question 5–2 The ‘withdrawal’ or ‘taper’ rate for an income support
payment operates to reduce gradually the rate at which a payment is made as
income or assets increase. What effect, if any, would changing the income test withdrawal
rate for Newstart Allowance recipients aged 55 years and over have on their
incentives for workforce participation?

[85] DEEWR, FaHCSIA, DHS and DIISRTE, Submission to the Allowance Payment Inquiry (2012), 58–59. At August 2010, 198,327 (32%) of Newstart Allowance recipients were aged 44 years or older: ACOSS, Beyond Stereotypes: Myths and Facts about People of Working Age who Receive Social Security, ACOSS Paper 175 (2011), 11.

[96] This
concessional activity test is available to persons aged 55 years and over and
in receipt of Newstart Allowance as well as Parenting Payment and Special
Benefit: Social Security Act 1991 (Cth) ss 502A, 603AA, 731G; FaHCSIA, Guide to Social Security Law (2012) <www.fahcsia.gov.au/guides_acts> at 30 August 2012, [3.2.8.20].

[111] M Levy, ‘Volunteering as a Participation Option for Income Support Recipients: Unconscionable or Underutilised?’ (2009) 14 Australian Journal on Volunteering 27; J Warburton, J Paynter, A Petriwskyj, ‘Volunteering as a Productive Aging Activity: Incentives and Barriers to Volunteering by Australian Seniors’ (2007) 26(4) Journal of Applied Gerontology 333.

[112] For
a summary of the reforms, see: DEEWR, FaHCSIA, DHS and DIISRTE, Submission to the Allowance Payment Inquiry (2012), 28–29, 139–146.

[113] Different
activity tests may apply for principal carers, persons with a partial capacity
to work, and job seekers aged 55 years and over: FaHCSIA, Guide to Social Security Law (2012) <www.fahcsia.gov.au/guides_acts> at 30 August 2012, [1.1.A.40].

[114] DHS, A Guide to Australian Government Payments 1 July–19 September 2012 (2012), 34. By comparison, the income free area for pension payments is $152 per fortnight.

[115]
Ibid. In general, partner income that exceeds the earning thresholds also reduces payment by 60 cents in the dollar.

[122] Although
this may be more likely for men than women: H Buddelmeyer, M Wooden and S Ghantous, Transitions from Casual Employment in Australia (2006), Melbourne Institute of Applied Economic and Social Research Report prepared for the Department of Employment and Workplace Relations, iii.

[130] OECD, Sickness, Disability and Work: Breaking the Barriers (2010), 17–18; Reference Group on Welfare Reform, Participation Support for a More Equitable Society (2000), 19; ACOSS, Out of the Maze: A Better Social Security System for People of Working Age, ACOSS Paper 163 (2010), 2.